Financial planning ethics are of paramount importance to sound financial planning. Yet this self-explanatory and seemingly obvious statement cloaks the areas of ‘grey’ within which financial planning ethics may not be at all obvious or not at all relevant. Financial planning ethics is all about communication. What works and what doesn’t; how things work and why they sometimes don’t; what could be expected and understanding of what has just happened. This is the grist to the mill of a financial planner’s day. At each point in time, there are options and possibilities and ranges of outcomes or causes that could apply to any given situation. In amongst this twist and turn of language, events and outcomes are areas in which ethics plays a part and areas in which ethics would appear to be relevant and yet is not. Here are further musings on ethics as they apply in financial planning in Australia today.
Financial Planning Ethics – the crossroads
Whenever faced with a series of decisions, i imagine Annibale Carracci’s “The Choice of Hercules”. In the painting, the very human Hercules is flanked by women who represent the ‘hard’ or ‘easy’ options for how he is to lead his life. It’s not a bad way to visualise the concept of making an ethical financial planning decision. The original text accompanying this particular image translates (rather badly) into English as…
“Portrays Hercules uncertain about choosing between two sonne. The right one with as clear is the pleasure, and shows the way plain between playing cards, theatrical masks and musical instruments. The woman dressed in the left hand, represents the virtues that indicates a road hard, narrow and uphill, on top of which, however, awaits the winged horse Pegasus, emblem of the Farnese family, which ultimately leads to glory and in heaven.”How is Hercules to choose?
To an extent, Hercules is lucky – as the pathways set out before him are obvious, limited, and the final outcomes are clearly set out – one leading to heaven and the other leading to an eternity of agony and retribution (at least, in a medieval interpretation… in todays’ world you could just be the fellow in the poster having a good time at the casino). Financial planning ethics are not always so highly visible or obvious or black and white in nature. It is rare that a financial planner is confronted with a simple case of “if i do this i lead a good life, if i do that i lead a bad life”.
Sometimes the decision being made is not clear to either the planner or the client. Rather, the end result is arrived at through a series of twists and turns taken without conscious reflection. Whether such subconscious (“not conscious”?) decisions count or whether they impact outcomes is something that won’t be known until much later. This lack of clear decision pathways is far more likely to be the kind of ethics faced by a financial planner today, and will be the focus of this post. To finish with Hercules Choice however, we need to look at one last possibility.
What if the decision is made for him? What if he is directed to act a particular way, and has no choice in the matter – can we then allocate blame or apportion fame to Hercules for his actions? Again, this style of outcome is more likely to be encountered in todays world of financial planning in Australia, where a large number of financial planners / advisers are licensed through corporate “Dealers” who have the capacity to mandate what a planner will do, how a planner will do it, as well as how and what a planner will charge for their services. All of these points are bundled into the term “independent” but you’ve heard my thoughts on that one before, and given its currency as an issue, i’m bound to embark down that pathway on a future post. As a by-the-by, that’s the reason for the “part 1” note on the title..
And for the historically inclined, the mandated decision is actually quite valid for Hercules – perhaps not in Carracci’s painting but in the original Greek myth of Heracles. The original story held that Heracles was the son of the King of the Gods, Zeus and Alcmene, a mortal woman. Hera, the wife of Zeus, was clearly unimpressed and pursued Heracles relentlessly – eventually sending him into a bout of madness in which he killed his own children. How do we reconcile the hero Heracles with such a horrific act unless we forgive him because he had no element of choice or control in his actions? The ethics surrounding the story have been a challenge through the centuries, and there’s a little more detail in the notes below. Now back to financial planning…
Financial Planning Ethics – “commercially realistic”
Here’s a scenario for you to test yourself on financial planning ethics in the real world…
A recent Australian Financial Review included an article “ANZ offers women free super advice”.
Given that there is no financial planner whose standard modus operandii is to offer free advice to women, what does knowledge of this initiative require the ‘ethical planner’ to now do when discussing financial planning with a female client?
- Inform all female clients they meet with subsequent to the publishing of this article that a free service is available elsewhere?
- Identify all female clients that they have ever dealt with, and current “prospects” for advice and to then work on and pay for a mail/email campaign to advise them that a free planning service is available?
- Read the full article and include a note about its content as an ‘addendum’ to any conversations or correspondence with female clients?
- Either pay for or use allocated client charge time to investigate the precise services and limitations of this free service. Using that information, provide a comparison of services against the ANZ offer, highlighting where the ANZ’s may offer better quality or value than their own?
- Stop dealing with female clients who hold less than $50,000 of super money (as this is what the article suggests as the target market of ANZ’s campaign)?
- Ignore the existence of the ANZ offer?
There may be more – but you’re not paying me for my thoughts, and with 5 children and a lovely wife, there’s only so much time i have available to devote to work interests – so let’s just leave it at 6 options for the moment.
Which would you choose? i’d certainly be interested in any feedback or thoughts, so feel free to leave a comment either on this post page or perhaps via my Facebook page.
Option 6 would be the “commercially realistic” choice, as the average financial planner is not in a position to work for no reward whatsoever, and even investigating the offer would mean utilising time that could better be spent improving services or offerings to people who already pay the adviser for the work they do. Option 6 may be commercially realistic – but is it ethical?
If a financial planner is aware of a free service competing with their own offering, wouldn’t ethics suggest that they should refer both existing and prospective clients who may fit the free service guidelines? If they know of a free service, would it be ethical to charge a fee for directing a person to a free service that they may not have otherwise been aware of?
Financial Planning Ethics – the dilemma
Financial planning ethics are so often portrayed in media as something obvious, where a bad person has done a bad thing and therefore the ethics underlying the entire industry should be brought into question. Yet more often ethics in financial planning involves a series of smaller decisions – none of which are morally or ethically reprehensible.
One of the more obvious and clearly visible areas where financial planning ethics are being questioned is the charging of fees and the manner in which these are paid. The past 10 years has seen an increasingly critical eye being cast over any fee that is couched as a ‘commission’ as such payments are potentially conflicted, and may result in outcomes that are not in the best interests of clients. This is fascinating topic, and one i will do my best to get to in some detail over coming months through my Friday Philosophy musings.
As usual, any comments, criticisms or critiques cheerfully received, even if sometimes ignored.
Disclaimers & Further Reading
- Carracci’s Hercules image attribution : “CarracciHercules” by Annibale Carracci – Web Gallery of Art: Licensed under Public Domain via Wikimedia Commons – https://commons.wikimedia.org/wiki/File:CarracciHercules.jpg#/media/File:CarracciHercules.jpg
- “ANZ offers women free super advice”, Australian Financial Review Wednesday 29th July 2015, p3 [subscription required for web access]
- Heracles’ story touches a number of ethical dilemma’s. Wikipedia’s entry includes some direct references to the ideas behind “Hercules Choice” …
- from Wikipedia… “After killing his music tutor Linus with a lyre, he was sent to tend cattle on a mountain by his foster father Amphitryon. Here, according to an allegorical parable, “The Choice of Heracles”, invented by the sophist Prodicus (c. 400 BCE) and reported in Xenophon‘s Memorabilia 2.1.21–34, he was visited by two allegorical figures—Vice and Virtue—who offered him a choice between a pleasant and easy life or a severe but glorious life: he chose the latter. This was part of a pattern of “ethicizing” Heracles over the 5th century BCE.”